Natural Gas Gains Most in 3 Weeks on Outlook for Colder Weather

By Christine Buurma -
Jan 11, 2013

Natural gas futures in New York
climbed the most in three weeks on forecasts for below-normal
temperatures that would boost consumption of the heating fuel.

Gas advanced 4.2 percent after MDA Weather Services in
Gaithersburg, Maryland, predicted colder-than-usual weather in
the Northeast and Great Lakes region from Jan. 21 through Jan.
25. A report from the U.S. Energy Information Administration
yesterday showed that inventories of the fuel last week fell by
the most since February 2011.

“The shift in the weather is what’s giving us this price
support,” said Phil Flynn, senior market analyst at the Price
Futures Group in Chicago. “The inventory number yesterday was
the biggest withdrawal in two years.”

Natural gas for February delivery rose 13.4 cents to settle
at $3.327 per million British thermal units on the New York
Mercantile Exchange. Trading volume was 26 percent above the
100-day average at 2:36 p.m.

The futures have climbed 20 percent from a year ago and
gained 1.2 percent this week.

April $2.50 puts were the most active gas options in
electronic trading. They were 0.3 cent lower at 0.7 cent per
million Btu on volume of 1,370 contracts as of 2:39 p.m. Puts
accounted for 57 percent of options volume.

Gas for March delivery narrowed to 0.9 cent above the
February contract from 1.5 cents yesterday.

Weather Impact

About 50 percent of U.S. households use gas for heating,
according to the EIA, which is part of the Energy Department.

The forecasts are “decidedly more supportive for higher
levels of natural heating-related consumption than those from
just a week ago,” Dominick Chirichella, senior partner at the
Energy Management Institute in New York, said in a note to
clients today.

The number of rigs drilling for gas in the U.S. dropped by
5 this week to 434, data from Baker Hughes Inc. in Houston
showed today. The total is down 45 percent from a year ago.

A surplus to the five-year average fell to 10.7 percent
from 12.4 percent the previous week. Supplies were 2.6 percent
below year-earlier inventories, the widest deficit since
September 2011.

Price Outlook

The EIA increased its estimate for 2013 natural gas prices,
citing more normal winter heating demand compared with last
year. Gas prices at the benchmark Henry Hub in Erath, Louisiana,
will average $3.74 per million British thermal units, compared
with the previous estimate of $3.68 and $2.75 in 2012, the EIA
said Jan. 8 in its monthly Short-Term Energy Outlook.

Natural gas output in the lower-48 states rose to an all-
time high in October as more of the fuel was pumped from shale
formations in the Northeast and North Dakota, the administration
said Jan. 7.

Gross gas production increased 0.4 percent to 73.54 billion
cubic feet a day from a revised 73.22 billion in September, the
agency said in the monthly EIA-914 report.

Supplies from the “other states” category rose 1.8
percent to 23.94 billion cubic feet a day from a revised 23.51
billion in September. Production in that region advanced “as
operators reported new wells coming online in the Marcellus and
Bakken shale plays,” the EIA said.

The boom in oil and natural gas production helped the U.S.
cut its reliance on imported fuel. America met 83 percent of its
energy needs in the first nine months of last year, government
data show. If the trend lasted through 2012, it will be the
highest level of self-sufficiency since 1991.